SMM Weekly Review and Forecast (August 10-14)

SHANGHAI, Aug. 18 (SMM) -- Supported by positive movements of major economic statistics, the US stock markets moved up after previous brief corrections over the past week. The China's Central Bank and the US Federal Reserve declared positive signs of economy. In this context, the US dollar index lowered, and LME base metals hit new highs, with domestic base metals following suit. Last week, SMMI advanced 2.37% from a week earlier, with SMMI.Ni and SMMI.Cu leading the increases, up 3.82% and 3.64%, respectively. SMMI.Al was flat with the previous level, while SMMI.Pb was the only one product experiencing declines, down 0.72% on a weekly basis. 

    Copper

    According to official statistics, China's output of refined copper was 336 kt in July, up 0.70% YoY, and up 0.15% MoM. China's refined copper output is expected to improve slightly, given completion of unit maintenance at smelters and relief of scrap copper supply. 

    China's output of copper semis was 785.7 kt in July, up 21% YoY, but down 14.06% MoM.  China's copper semis output in July experienced slight declines on a monthly basis during the seasonal low demand period. 

    Higher copper prices depressed downstream purchasing interest, causing lackluster trading in spot markets, and slight spot discounts. The SHFE/LME copper price ratio fell further, as LME copper prices remained stronger than SHFE copper prices. 

    Slow demand has weighed on domestic copper price increases. However, SHFE copper prices will move higher in the coming week, testing RMB 50,000/mt. 

    Aluminum

    SHFE aluminum prices moved in the RMB 15,000-15,300/mt range over the past week, meeting great resistance at RMB 15,500/mt. Positions remained relatively stable, but trading volumes dropped significantly, an indication of mixed views towards the future outlook. Price corrections in mid-week depressed downstream buying interest, and trading volumes among traders experienced marked declines after failure to climb higher. Overall trading sentiment in spot markets remained lackluster, a sign of low confidence towards outlook.  
 
    With positive statements from the US Federal Reserve, and encouraging economic data from  major European markets, market players generally believe the worst of global financial crisis is over, although remain unsure as to the recovery. Countries around the world will likely continue easing monetary policy during the recovery period. SMM believes aluminum prices will remain on an upward track over the mid-term, given the improved economic statistics and expectations of inflation. After reaching high levels, price increases of aluminum will now begin to slow. 

    LME aluminum prices will track price trends of other base metals, testing USD 2,000/mt or above next week, while aluminum prices in domestic spot markets will likely climb above RMB 15,300/mt in the coming week.

    In general, aluminum price trends will be not as strong as other base metals, and LME aluminum prices will outshine SHFE aluminum prices. 

    Lead

    Domestic lead markets failed to increase with rising LME lead prices, with deals made in the RMB 13,500-13,700/mt range, and with prices down RMB 200/mt from the previous week.  Downstream producers showed low interest with regard of purchases, waiting for prices to fall further, while traders holding stocks were eager to sell to increase cash flow. Prices were down slightly, although some suppliers tried to maintain prices. On Wednesday, falling LME lead prices depressed market confidence, with only a few deals done at the low-end price of RMB 13,300/mt. 

    Domestic lead prices lacked upward momentum, relying on positive support from LME lead market and other base metals performance. 

    Zinc

    SHFE zinc prices fluctuated in the RMB 14,800-15,300/mt range over the past week. Downstream producers held mixed views towards the future outlook, given no significant improvement in end-user demand, strong LME markets, as well as ample cash flow. Coupled with favorable economic statistics recently, most downstream producers became cautious, leading to depressed trading sentiment in spot markets, with spot prices below RMB 15,000/mt.    

    The average weekly price of 0# domestic zinc in the Shanghai market was RMB 14,795/mt, up RMB 90/mt on a weekly basis, while imported zinc averaged RMB 14,735/mt. Spot discounts narrowed following the approach of delivery data, with discounts dropping to RMB 300-350/mt from RMB 500/mt. In addition, supply of imported goods was limited due to depressed imports. 

    Tin

    On Tuesday, Yunnan Tin Group lifted ex-works prices to RMB 123,000/mt, generating little buying interest. Modest trading sentiment continued to dominate markets, with deals generally below RMB 120,000/mt. Transactions for miscellaneous goods were better than major brands thanks to price advantages. However, depressed consumption remained as the important factor for traders' decision to make purchases or not. Market supply was not sufficient, and profits were squeezed. Producers maintain offers above RMB 120,000/mt, and the stagnant state of producers and traders will not change in the short term.  

    Market players believed downstream producers would not neglect the rising raw material prices, and they might passively accept them. 

    Domestic tin prices will show a stead upward trend. 

    Nickel

    Price spread between domestic and LME nickel markets expanded further to RMB 20,000/mt and above, a sign of weak domestic consumption for nickel, which was in line with waning trading volumes in east China over the past week. Trading sentiment in domestic NPI markets improved gradually, with steadily rising prices. Supply of NPI (nickel content 10%) reported supply shortages. 

    On Thursday, inventories in Wuxi electronic trading and Wuxi warehouses totaled 4,130 mt, up 750 mt on a weekly basis. On the same day, trading volume was 1,470 mt, with many spot goods turning into stocks. 

    Jinchuan Group did not lower ex-works prices because of fluctuating prices, and sales pressure in spot markets was high, increasing the price spread between spot and ex-works prices to RMB 4,000-6,000/mt. Therefore, sales of goods from Jinchuan Group were better than imports earlier in the week. 

    Stainless steel producers in western countries are lifting their output, especially those with low inventories. ArcelorMittal predicted the global steel industry would rebound strongly in the coming year, and global demand for stainless steel will improve 10% at least in 2010. 

    At present, the average utilization rate at Chinese stainless steel mills has improved to 91%, a significant increase compared with the 67% level recorded last October. Based on this growth, China's stainless steel output in 2009 should exceed levels from 2008.  
 

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